As an investor, choosing the right exchange-traded fund (ETF) can be a daunting task. With so many options available, it’s easy to get lost in the sea of information.
Two popular ETFs that investors often compare are VTV and VIG. In this article, I will explore the differences between these two ETFs and help you decide which one may be the better fit for your portfolio.
VTV vs VIG: The expense ratio of VTV is 0.02 percentage points lower than VIG’s (0.04% vs. 0.06%). VTV also has a higher exposure to the financial services sector and a higher standard deviation. Overall, VTV has provided lower returns than VIG over the past ten years.
VTV and VIG are both passively managed ETFs offered by Vanguard.
VTV tracks the performance of the MSCI US Prime Market Value Index, while VIG tracks the performance of the NASDAQ US Dividend Achievers Select Index.
Both ETFs have a focus on value and dividend-paying stocks, but they have some key differences that may impact your investment decision.
Table of Contents
Key Differences Between VTV and VIG
What is VTV?
VTV is the Vanguard Value ETF that tracks the performance of the CRSP US Large Cap Value Index.
This ETF invests in large-cap value stocks with a focus on companies that have a history of paying dividends. VTV has an expense ratio of 0.04%.
What is VIG?
VIG is the Vanguard Dividend Appreciation ETF that tracks the performance of the NASDAQ US Dividend Achievers Select Index.
This ETF invests in large-cap companies that have a history of increasing their dividends for at least 10 consecutive years. VIG has an expense ratio of 0.06%.
Investment Strategy
VTV and VIG have different investment strategies. VTV focuses on value stocks, while VIG focuses on companies with a history of increasing their dividends.
VIG’s investment strategy is more focused on income generation, while VTV’s investment strategy is more focused on finding undervalued stocks.
Top Holdings
VTV’s top holdings include Johnson & Johnson, Berkshire Hathaway, and Procter & Gamble. Meanwhile, VIG’s top holdings include Microsoft, Johnson & Johnson, and Visa.
Both ETFs have a significant overlap in their top holdings, but VTV has a higher concentration in the consumer staples and financial sectors.
Performance
Over the past 5 years, VIG has outperformed VTV with an average annual return of 16.57% compared to VTV’s 14.13%.
However, VTV has a slightly higher dividend yield of 2.94% compared to VIG’s 2.06%.
Expense Ratio
VTV has a lower expense ratio of 0.04% compared to VIG’s 0.06%. This means that VTV is slightly cheaper to own than VIG.
VTV and VIG have different investment strategies and performance histories.
Investors looking for value stocks with a slightly higher dividend yield may prefer VTV, while investors looking for companies with a history of increasing their dividends may prefer VIG.
Both ETFs can provide exposure to large-cap stocks and can be used as part of a diversified investment portfolio.
Which One Should You Choose? VTV vs VIG
Your Investment Goals
When choosing between VTV and VIG, it’s important to consider your investment goals. If you’re looking for stable, long-term growth, VIG may be the better option.
On the other hand, if you’re willing to take on more risk for potentially higher returns, VTV may be the way to go.
Risk Tolerance
Another important factor to consider is your risk tolerance.
VIG is generally considered to be a more conservative investment, with a focus on dividend-paying stocks from established companies. VTV, on the other hand, has a higher exposure to the financial services sector and a higher standard deviation, making it a riskier option.
Diversification
Diversification is key to any successful investment strategy.
Both VTV and VIG provide exposure to a wide range of stocks, but VIG has a more concentrated portfolio, with its top ten holdings accounting for over 50% of its assets.
VTV, on the other hand, has a more diversified portfolio, with its top ten holdings accounting for just over 20% of its assets.
Current Market Conditions
Finally, it’s important to consider current market conditions when choosing between VTV and VIG. In a bull market, VIG may outperform VTV due to its focus on established, dividend-paying companies.
In a bear market, VTV may perform better due to its exposure to value stocks. Ultimately, the decision of whether to invest in VTV or VIG depends on your individual investment goals, risk tolerance, and current market conditions.
It’s important to do your own research and consult with a financial advisor before making any investment decisions.
